A Muddled MarketBy Rev Shark
Street.com Contributor
1/26/2011 8:58 AM EST
After a very choppy day of trading yesterday, we have a positive start to the day today. The media is focusing on President Obama's call for corporate tax cuts and a freeze on spending as the impetus for the positive mood. On the other hand, The Wall Street Journal and the more conservative news media are focused on the lack of any real initiatives for dealing with our massive debt.
None of that is going to matter for too long, as Washington will quickly return to its wrangling and we focus on the FOMC interest rate decision that is out this afternoon. No one expects any major policy shift, but the big question is whether we'll get any hint that maybe the economy is improving enough that further quantitative easing will be limited.
This market has been celebrating the Fed's use of the dollar printing press for a very long time, and any hint -- no matter how subtle -- that it could slow is going to be a problem for the market. Ben Bernanke has made it clear that he sees no reason to rush to end "accommodative" monetary policy for a while, so the chances of any change today are pretty small, but the market will be looking very hard for any subtle hints.
No one expected the FOMC to do much of anything in its policy statement last month, which was indeed the case, but we had a reaction nonetheless simply because the market was looking for some excuse to take some profits after a good run.
Presently the market situation is much more muddled. We have had quite a bit of volatility, although it's been covered up by a few big-caps in the DJIA, but it is definitely a much more mixed picture than we had a month ago.
So far the reaction to earnings season has been quite mixed. While there have been some strong responses to reports -- like IBM (IBM) -- we've also had quite a few "sell the news" reactions. The cloud computing plays and Google (GOOG) and Apple (AAPL ) are prime examples of how difficult earnings have been. Overall, earnings have not been a very positive catalyst even though the numbers have not been bad at all.
So we have quite a muddled picture right now and the possibility of some market-moving news from the Fed. Technically we are holding up fairly well but there has definitely been damage done under the surface, particularly to small-caps.
We really have to watch for the possibility of a failed bounce. It looked like we were going to have one yesterday, but we were bailed out by late-day buying; we are following through a bit to the upside this morning. Don't get too comfortable with this market -- there are a lot of potential landmines, and as we saw yesterday, the chances of intraday reversals are very high.
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